Inflation data expected to climb
Further pressure on the Pound
The Bank of England recently surprised markets by not hiking interest rates, leading to some confusion and pressure on the Pound. However, the Pound to US Dollar exchange rate has managed to recover some of last week’s losses and has been holding above the $1.34 interbank level in early trading today. Given the recent confusion from the BoE, economists are split on when the central bank might look to hike interest rates—with some expecting February to be a more likely time rather than the last meeting of the year in December if weaker labour market data comes to light. Additionally, there's Brexit tension back in the limelight, with the possibility the UK will trigger Article 16, which could bring in tariffs and be another burden for the Pound. UK labour market data will print in the week ahead, with expectations for a slight fall in unemployment, and inflation stats will also be out for release.
ECB doves pressure Euro
It was a relatively flat week for the Pound to Euro currency pair last week, closing just 0.44% higher. Against the US Dollar, the Euro closed at its lowest levels since the summer of 2020 as inflation and a dovish European Central Bank weighed on the common currency. The focus will shift to the ECB's December meeting with updated inflation and growth stats revealed; markets will be closely watching to see how close forecasts are to the central bank's targets. ECB President Christine Lagarde will be speaking in the week ahead, while final inflation stats will also be released, which are expected to remain unchanged.
Cable reaches year-to-date-lows
It was a story of Dollar strength last week as the US currency extended gains reaching levels last seen in July 2020. The Pound hit year-to-date lows on Friday versus the US Dollar, closing around 0.6% lower. US inflation stats put more pressure on the Cable pairing, having shown their quickest increase since 1990, reaching levels of 6.2% in October. Former head of the US Federal Reserve and current Treasury Secretary Janet Yellen has repeatedly said that controlling Covid will tame inflation. Meanwhile the debate on whether President Joe Biden's $1.75tn social spending will fan the flames of inflation continues. Consumer confidence has plummeted to ten-year lows on account of consumer prices which will impact spending; labour market conditions also seem to be worsening. President Biden's approval ratings have sunk, with only 39.0% of voters approving of how the government has handled the economy. Federal Reserve representatives will speak this week, and retail data will also be released.
AUD and NZD
RBA Meeting Minutes ahead
Against the New Zealand Dollar, the Pound touched its lowest level since January 2021 on Monday but finished the week 0.52% higher. Meanwhile, the Pound to Australian Dollar currency pair was rangebound, closing around 0.37% higher. The Reserve Bank of Australia will release its latest meeting minutes in the week ahead, followed by a speech from RBA Governor Philip Lowe. Other economic events include Westpac's Leading Index—which details economic activity in Australia—and the Australian Wage Price Index stat. It's a quiet week in terms of New Zealand data, but Sunday evening will see the release of Kiwi Retail Sales stats, which could be influential for the New Zealand Dollar heading into next Monday's trading.
Inflation data expected to climb
Last week, the Pound to Canadian Dollar exchange rate touched its lowest level since March 2020 but finished the week 0.32% higher. It could be an interesting week for Canadian data, with inflation stats due for publication. Expectations are for a climb in consumer prices on the year in October, from 4.40% to 4.7%, a 0.70% climb on the month. Retail Sales and housing data will also be out later in the week.